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Will Meituan-Dianping's Unstable Factors Disrupt Its IPO?

摘要：
The Meituan-Dianping born out of the merger of the two group-buying giants is no doubt the current dominant force in the industry. However, it doesn’t necessarily mean the new company has no weakness. In fact, there is crisis existing in the company’s IPO process.

I have written an article after Meituan and Dianping's merger, in which I analyzed the situation the merger would create. Although the overall prediction had been inaccurate, but there are also some details that have been proven to be quite right. I mentioned in the article that the prospect of Meituan-Dianping would be decided by the integration process in the future six months. Up till now that six months have passed and I am bringing up this topic once again to take the analysis further and up to date.

It all started with a crowdfunding campaign

In January this year, the report What are the risks for equity-based crowdfunding to penetrate Meituan-Dianping? revealed that P2PEYE’s TOUYOUQUAN is managing the equity-based crowdfunding for Meituan-Dianping. The report brought up a big stir at that time. However, there was no follow-up report, which made it a report without an end. Today, I am going to write about the end of the story. The truth is, due to the report and other factors, this equity-based crowdfunding didn’t happen. Potential investors that were about to pour in all quit.

How did I come to know about this? In fact, I was one of the participants of this project and I invested some money.

Although I have made many negative comments about Meituan before, I really admire Meituan’s capability to execute strategies as a company and Wang Xing’s leadership. What I don’t like about is Meituan’s business model. The merger with Dianping in some way fixed Meituan’s flaw in business model. Meituan-Dianping is pretty much invincible already in the life service sector. It’s just a matter of time that the new company is going to go public and become an enormous giant in the near future.

On an occasion, I learned that through TOUYOUQUAN I would have the opportunity to become a major shareholder of Meituan-Dianping, then I took the chance and participated in the project. I even convinced my families to join me. Although I did know that such crowdfunding project always comes with a lot of risks, and that the capital winter was about to come, I still had faith in the prospect of Meituan-Dianping.

During the roadshows of the equity-based crowdfunding project, the listing plan for Meituan-Dianping was mentioned, saying that the company would go public before 2018 and the estimated valuation is over USD 60 billion. Additionally, rumor has it that the management team has a VAM on going public with the capital. There’s no confirmation whatsoever on this information but still it made sense. As a matter of fact, besides TOUYOUQUAN, documents from Zhongzhi Enterprise Group also suggest such theory.

Apparently, Meituan-Dianping wants the IPO really bad. The merger was supposed to raise the joint venture’s IPO. To achieve that, Meituan-Dianping would have to make some profound changes in the next two years. The company would have to shift its focus on GMV to producing new blood. Such change is based on the two companies’ merging process, and it generates many uncertainties for Meituan-Dianping.

Uncertainty One: The unstable market share

At present, the group-buying sector is dominated by Meituan-Dianping, Baidu, and Alibaba. Even though Meituan and Dianping are the two most frequently used platforms, Alibaba and Baidu’s forces in the competition are hard to come by still.

My faith in Meituan-Dianping was shaken during the Double Twelve Shopping Festival last year, during which period Alipay and Koubei suddenly had a surge in market performance. Businesses around Shanghai Daning either sold out their items on Koubei or had long queues waiting up at their door. Even though the user experience was terrible, but the whole scene was indeed impressive. At that time I wondered if Meituan-Dianping could make something like this happen if they launched a similar campaign.

Koubei’s business model is very different from Meituan, therefore it’s hard to make the comparison. However, Baidu’s Nuomituan is gaining momentum fast, which poses a threat to Meituan’s realm. According to statistics from Baidu, Nuomituan has actually surpassed Meituan in some second-tier cities.

As the demand for producing new blood rises drastically, Meituan-Dianping has been lowering their subsidy for businesses. In contrast to that, Baidu’s Nuomituan is not letting up at all. Furthermore, Baidu’s ecosystem, which includes Baidu Map and Mobile Baidu, is growing strong and helping Nuomituan evolve alongside. So far Nuomituan has shown a rapid growth in the market this year.

However, from my knowledge, Meituan-Dianping adopts different point deduction and subsidy strategies in different regions, perhaps a way of sacrificing market share in exchange of income surge. Nuomituan’s growth in market share in some way can be attributed to Meituan-Dianping’s shift of focus.

Aside from the group-buying sector and the film ticket sector, Meituan-Dianping is still struggling in the hotel booking and takeout service sector. Backed by Alibaba, Eleme now is a powerful direct rival of Meituan Takeout, while in the hotel booking sector Qunar merged with Ctrip, forming a new alliance that can compete fiercely with Meituan. It’s for sure that Meituan-Dianping won’t have much of a breakthrough in these two sectors in a short time.

Uncertainty Two: Selling Maoyan for cash

Recently, Meituan-Dianping priced Maoyan’s stocks at ￥8.3 billion and sold some stocks to ENLIGHT MEDIA, leaving only 6% of stocks to itself. Although the company was therefore able to amass ￥2.4 billion, it won’t change the fact that this is a rather bad idea.

The ticket booking sector is not a lucrative line of business since it has a rather low transaction volume per purchase and doesn’t have the highest purchase rate. You can pretty much have guessed that the profits that come out of this sector aren’t much. But still, there was ￥15.6 billion of GMV contribution last year. Besides that, at-spot service is also a leading sector in the market. Even though the valuation of ￥8.3 billion is not bad, but selling the stocks would mean that the company has lost a potential growth drive, which would bring immeasurable damage to the valuation of the IPO.

The loss of Maoyan is actually a favorable news to Meituan’s rivals from all lines of business. All they have to do is hold on for a little bit longer then Meituan would probably give up its current counter-attack strategy. From Ctrip’s perspective, continuing to invest in and compete for this particular sector would make Meituan realize that this is going to be an exhausting and long fight for both sides. Here comes the question: Will Meituan sell out its hotel service business too? There are very few forces that match Meituan’s power. Chances are some companies might want to include Meituan’s business into their industrial layout.

Meituan-Dianping won’t give up on its group-buying concept when going public since the company would utilize the life service concept to attract investors. After Maoyan was sold, the concept on movie would bring about doubts, and therefore what’s left are at-spot service, take out service, hotel service, and wedding service. If anything goes wrong with these sectors, then it’s uncertain whether Meituan-Dianping could go public with the concept of life services.

Maoyan, who had been seeking to be independent all along, originally wanted to operate independently with Meituan-Dianping holding the majority of its stocks. The fact that Maoyan had been dumped to ENLIGHT MEDIA shows that there are great risks in the capital environment and that Meituan-Dianping is so in need of cash for the IPO that the company had no choice but sold some of the cake out.

Uncertainty Three: The slow business integration process

It has been over six months since the establishment of Meituan-Dianping, but the integration of the two companies has been rather slow whether it’s in the aspect of brand, product, business or personnel structure.

In the perspective of Brand, Meituan and Dianping are still operating under their own names independently unlike other merger cases in which the more powerful one would become the face of the two companies eventually. That's why Dianping seems to be growing steadily with its user retention rate and its high-end use base while Meituan is seemingly declining (in accordance with Baidu index).

Looking from the products, despite the fact that some functions have been connected between Meituan and Dianping, their core feature, which is the discount service, still operates independently as some businesses only have discount activities on Meituan while some on Dianping. That said, some GMV would flow to Alipay or Baidu since Baidu and Alipay’s user base is no match to Meituan-Dianping.

As for its personnel, Meituan applies the PIP agreement to optimize its personnel structure. In simple term, incompetent staff will be transferred to other posts or will be relieved. This management method is befitted for financial optimization for Meituan-Dianping for the fact that it’s quite obvious the company is holding many unnecessary staff. However, it also creates a pressuring environment that brings mental stress to the staff, making some resources fly to Baidu’s Nuomituan and Alipay.

If we take the integration process of the past six months out and look deeper, we would find that it had been a rather slow motion, which will inevitably affect the company’s businesses. Let’s take a look at the smart restaurant sector as an example.

Not long ago, one of my friend went to have an interview for a middle position at a smart restaurant and for that he learned about this deeply-hidden project. Before the merger, Meituan had already been working on the smart restaurant project, hoping to help restaurants to achieve digital operation through which Meituan can amass more data. The smart restaurant project is a potential area that can provide Meituan with more opportunities of growth. Dianping’s investment in ERP is supposed to help out the making of this project, but the truth is the process has been slow in the past six months.

Overall, although Meituan-Dianping still has a stable foundation, its uncertainty factors both in the inside and outside are continuing to grow. Now Meituan-Dianping is about to have its IPO very soon, but the capital market remains calm. In my opinion, Meituan is definitely going public, but it remains uncertain how much the valuation would be when that day really comes. I wonder if investors from the secondary market would also make the same judgment.

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评论（1）

Dianping is a fraud and any investor should stay well away. Of the reviews on the site, very few are genuine reviews. The vast majority of reviews come from paid publicists who advertise their services on Taobao and other sites (check Taobao listings for 5 Star Dianping rankings, there are now hundreds of firms controlling tens of millions of zombie accounts). Dianping is now becoming worthless to users due to paid publicity pollution. Many Chinese friends will no longer use it to check out restaurants. Dianping makes almost zero effort to verify accounts (despite this being a legal requirement) and will inevitably face regulatory consequences. Dianping's sales force is out of control, with staff (contractors) in second and third tier cities extorting restaurants (widely reported in the Chinese media in 2014). Those restaurants that refuse to buy advertising on Dianping or participate in group buying events face a tsunami of nasty negative reviews. Stay away.